Employee-benefit programs, including employee pension programs, have accumulated large amounts of assets, by 1994 exceeding $1.75 trillion. For many individuals of low and moderate income, their beneficial interests and assets in these benefit programs are their largest, or even their only, pool of capital and savings.
These assets have traditionally been set aside for and limited to retirement income purposes only, and have not been available to help with the vicissitudes of life, such as higher education, purchase of a residence, temporary unemployment, unexpected medical expenses, and the like. But for those of low or moderate income, who may be the most challenged by these life events, such limitations on these most significant assets can be a problem.
Fortunately, statutory and regulatory developments provide possibilities for ameliorating these asset-availability problems. Specifically, they now permit benefit plans to establish policies and procedures for making temporary loans from individually-accumulated assets to their employee beneficiaries. Theoretically, anyone who needs temporarily to tap their benefit-plan assets may now do so by applying to their benefit plan.
But benefit-plan administrators to date have typically adopted conventional paper-based procedures usually requiring an employee submission of a completed loan application for each separate loan, employer-plan approval of the loan application, and then employee signature of a note with fixed installment-based terms to repay the borrowing to the plan. Many plans also require participants with outstanding benefit-plan loans to repay the loans within a short period of time (usually 90 days) after termination of employment (not particularly convenient) or risk substantial tax consequences. For those most likely to need benefit-plan loans, this process appears time consuming at best and intrusive, unfamiliar, and intimidating at worst.
The unfortunate consequences of these traditional procedures has been, on the one hand, that individuals of low and moderate income avoid plan loans and instead rely on high interest rate credit cards for their financing needs. On the other hand, if a plan loan is used, more funds than are immediately needed are usually removed from the benefit plans, due to the difficulty of the current process and the uncertainty of a participant's financial needs at the time of loan application, which unnecessarily lowers future retirement income. In the worst case, employees eligible to participate in a retirement plan completely opt out because of the perceived lack of liquidity.
Proposals that have been made for simplifying the benefit-plan loan process have not enjoyed any commercial success thus far, principally because they have not adequately considered the current financial record-keeping systems of employee-benefit-plan providers. These current record-keeping systems are structured to interact with employers and investment managers, not with the employees who are the beneficiaries. For example, U.S. Pat. No. 5,206,803, issued Apr. 27, 1993, describes a system for providing pension-fund-backed credit to fund beneficiaries. But that system places all the burdens of processing employee credit demands and of distributing funds on the pension plan itself.
There is clearly a need for methods and systems that simplify providing of employee-benefit-plan loans while respecting the functionality of existing benefit plans, financial mechanics, methods, and systems for providing basic retirement income and other employee-benefit services.
Citation or identification of any reference in this section or any section of this application should not be construed as indicating that the reference is available as prior art to the present invention.